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What Government Shutdown Means for P/C Insurance Industry
The property/casualty insurance industry is not immune to any economic effects the federal government shutdown may bring but since the industry is largely regulated by the states, not Washington, the impact on the industry of federal workers not going to work should be minimal. Insurance licensing, product and rate approvals, and other state regulatory activities will continue.
If hundreds of thousands of federal employees see their paychecks delayed for an extended period, insurance carriers and agents with a lot of federal employees or contractors as customers would eventually begin to worry about their customers’ ability to keep up payments.
The experience of the government shutdown in 2013 provides some insight into what the industry might expect in terms of certain government operations if the shutdown continues and furloughs of employees begin.
The federal government’s emergency and essential personnel including those serving in the military would still go to work, although the White House has leeway in determining what personnel and services are deemed essential.
Not all federal services depend on annual fiscal year appropriations. But the longer the shutdown, the more workers will likely be furloughed and the more services will likely be affected.
Based on the government response to the shutdown in 2013, the Federal Emergency Management Agency (FEMA), part of the Department of Homeland Security, will continue any disaster efforts it has underway, since those are funded out of a special disaster relief fund and not annual appropriations. If there were a major disaster where states needed assistance, FEMA could be called on for help.
Payment of Harvey, Irma, Maria and other claims by the National Flood Insurance Program will continue; however, according to FEMA’s website today, the agency will stop selling and renewing flood policies. That could affect home sales and closings.
FEMA has stopped managing its website.
At the Occupational Safety and Health Administration (OSHA), which inspects workplaces, furloughs would mean limiting inspections to only the highest risk cases. OSHA’s parent agency, the Department of Labor, has stopped updating its website.
If the shutdown continues, there would also eventually be cutbacks in inspections and oversight by the National Regulatory Commission, the Federal Aviation Administration and the National Highway Traffic Safety Administration. The FAA website today says the FAA will only continue air traffic control and safety inspections and maintained “there will be no impact to safety or safety oversight for the traveling public.”
Crop insurance, farmers’ crop subsidies and food stamps should continue because those programs are separately funded.
The self-funding U.S. Post Office will still operate, thus premium checks and policies can still be mailed.
Federal law enforcement, courts and juries are expected to continue operating, at least for the immediate future.
The Office of Judicial Administration for the federal courts said on its website that the federal Judiciary will remain open and can continue operations for approximately three weeks, through February 9, by using court fee balances and other funds not dependent on a new appropriation. Thus most proceedings and deadlines will occur as scheduled. If, however, the shutdown were to continue past three weeks, operations would be reduced.
The Securities and Exchange Commission (SEC) said it will “remain open for a limited number of days during the federal government shutdown, fully staffed and focused on the agency’s mission.” However the agency said it has a plan in case the shutdown continues under which it will “focus on the market integrity and investor protection components” of its mission.
Airlines and Amtrak should run as scheduled so those needing to travel for business should not encounter trouble, although those needing passports will likely experience a delay.
This is not the first federal government shutdown. In 2013, the shutdown lasted from Oct. 1 until Oct.17. In November 1995, there was a five-day shutdown, followed by 21-day shutdown from December 1995 to January 2006.
The government nearly shut down in April 2011 before the House, Senate and Obama administration agreed on a budget for the rest of the fiscal year.